India’s Oligopoly: Aviation Sector & Market Concentration Concerns

India’s Finance Ministry has raised concerns regarding the ‘oligopolistic nature’ of the country’s aviation sector. This scrutiny highlights a broader examination of other Indian industries where a few dominant companies hold significant market influence.

An oligopoly describes a market structure where a limited number of firms possess substantial market shares. The strategic decisions made by any one firm significantly impact the overall market dynamics, requiring companies to consider their rivals’ actions closely.

Understanding Market Concentration with HHI

The Herfindahl-Hirschman Index (HHI) serves as a crucial metric for identifying oligopolies and measuring market concentration. This index is calculated by summing the squares of the market shares of all firms within a given sector.

• An HHI score exceeding 1,800 typically indicates a highly concentrated market.
• Beyond the raw HHI figure, other factors, such as the total number of firms and the nature of their interactions, are also vital for a complete assessment.

Key Market Concentration Data Points

Recent analyses reveal a notable increase in market concentration across several Indian sectors. The average HHI for eight examined sectors climbed significantly over the past decade.

• The average HHI across eight sectors reached 2,532 in FY25, up from 1,980 in FY15.
• Specific FY24 HHI scores include 3,607 for paints, 3,004 for telecom, 2,175 for iron and steel, 2,001 for tyres, and 1,577 for cement.
• The combined revenue share of the two largest firms in telecom grew from 46.5% in FY15 to 71.9% in FY24.
• Similarly, in the steel sector, the top two firms’ revenue share increased from 44.5% to 57.6% during the same period.

Sectors Exhibiting Oligopolistic Characteristics

Several Indian industries currently display characteristics indicative of an oligopoly. These sectors range from traditional manufacturing to modern digital markets, showing varying degrees of concentration.

• Highly concentrated sectors based on FY25 HHI data include aviation, telecom, paints, steel, and two-wheelers.
• Moderately concentrated sectors encompass cement, tyres, and passenger vehicles.
• The Fast-Moving Consumer Goods (FMCG) sector also shows signs of potential oligopoly, with a 2022 research paper noting its reliance on a few dominant firms.
• Digital markets, such as e-commerce, online travel aggregators, and food-tech platforms, are concentrated, though definitive HHI calculations are not yet available for formal classification.

Aviation Sector: A Case Study in Concentration

India’s aviation sector stands out with one of the highest market concentration levels. This dominance by a few key players is evident across both airline operations and airport management.

• The aviation sector recorded the highest HHI of 4,400 in FY23.
• During FY23, InterGlobe Aviation and the Air India-Vistara combination collectively accounted for 92.6% of airlines’ net sales.
• By July 2026, IndiGo and the Tata Group-owned Air India Group are projected to handle approximately 91% of domestic passenger traffic.
• In the airport segment, Adani Airport Holdings and GMR Airports together manage over half of India’s air passengers.